Supply Chain Management Conference 2004
SOLECTRON CHINA --
A Path to Low-Cost Manufacturing for Integrated Global
Supply Chain Solutions
China at the Crossroad of the Global Supply Chain Forum
Wesley Chen, VP and General Manager
April 15, 2004
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Agenda
• Why Manufacture Electronics in China?
• Challenges
• The Solectron China Experience
• Case Examples
• Conclusion
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Why Manufacture Electronics in China?
Cost Reduction
-Wage Differences
-Supply Chain Localization Potential
You Can’t Afford Not to Be in China
-Cost Advantages for Global Manufacturers
-Access to Growing, Dynamic, and Large Market
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Worldwide Hourly Wage Rates
China
Thailand
Malaysia
Taiwan
Brazil
Mexico
Japan
United States
Canada
Sweden
France
Germany
Cost Reduction
Wage Differences
• Hourly labor wage is low and stagnant due to large population base
Supply Chain Localization
• Unlike other low-cost locations, China is growing a complete local supply base, including semiconductors
• Most global OEMs already have presence in China to:
- Address huge domestic market
- Leverage competitive manufacturing cost
$12.15
$65.63
$11.02
$56.21
$10.45
$54.89
$9.95
$47.75
$9.74$43.85
$9.32
$63.39
$2.70
$18.38
$2.63
$23.63
$2.15
$17.22
$1.37
$12.29
$1.26$11.34
$0.89$8.93
Hourly Rate
Burdened Rate
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China has a total landed cost advantage, even for complex products.
Western Europe
ScotlandBudapest
Mexico
Guadalajara
United States
ColumbiaOregon
China
ShenzenShanghai
5 2 1 6 8 4 3 7
UnitedStates
West
Manufacturing Sites
Singapore
Central South 5 1 2 8 6 3 4 7
Midwest 5 1 2 8 6 3 4 7
East 5 1 2 8 6 3 4 7
5 2 1 6 8 3 4 7Mexico
Customer
Sites
3 1 2 7 8 5 4 6China
East
South 4 2 1 6 8 5 3 7
4 1 2 7 8 5 3 6Japan
3 2 1 7 8 5 4 6Malaysia
4 1 2 8 7 5 3 6Hungary
5 1 2 8 7 4 3 6Netherlands
5 2 1 8 7 4 3 6Scotland
Notes: Ranking explanation—―1‖ the lowest landed cost site, ―8‖ the highest landed cost site
= Lowest-cost sites
3
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Manufacturing in China gives you access to a huge market.
• 482 million people have an annual income of more than $1,000.
• GDP $5.9 trillion, with a growth rate of 8% (2002).
• Post-WTO, China emerged as the favorite destination for foreign direct investment ($53 billion in 2002).
• During 2002, on average real urban disposable incomes rose by 13.4% and urban consumption rose by 4.8%.
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Challenges
• Managing Supply Chain Localization
- Majority of Cost is in Material
- Proximity to Supply Base
• Finding World Class Manufacturing Partner
- Ensuring High Quality
- Keeping Cost Low and Efficiency High
• Unique China Regulatory Environment
- Emerging Policies after WTO
- IP Protection
• Potential Constrains in Resources
- Mid-class Management
- Electricity Shortage
- Congested Transportation
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The Solectron China Experience
• History
• Locations
• Capabilities and Practices
• Building Integrated Global Supply Chain Solutions
• Doing It Right
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1995
Government relationship development and site survey
1996 1997 1998 1999 2000 2001 2002 2003
Registered and Established Office in Suzhou
Started production in renovated leased facility
ISO 9002 certification; MBNQA
Grand opening of Suqian site
Site expansion to four factories
VMI and custom EDI
E-PTL and ISO 14001 certification
TL 9000 and QS 9000 certifications
Suhong site expansion
Solectron has a strong experience base in China.
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Local Suppliers Close to Solectron Manufacturing Locations
PCBA/System Ops
Enclosure/BP Ops
Repair Ops
Shanghai
Beijing
Shenzhen
Chengdu Suzhou
Kunshan
Solectron
Shenzhen
Tianjin
Shanghai
Passive, LCD, Keypad, Plastic, Microphone(Yageo, Murata, TDK, Epson, Seiwoo, GPS,
Panasonic)
(20 minutes by truck)
Discrete, Plastic, Keypad, Antenna, Battery, Connector
(Everlight, H-iP, Centurion CIK, Amphenol, Molex, Tyco)
(2 hours by truck)
PCB, Keypad, Battery, LCD, Motor (Compaq, Sanyo, Panasonic,
Ichia, Seiko, E&E)
(1 day by truck)
Discrete(LRC)
(1 day by truck)
PCB, Keypad, Passive(WUS, Unicap,
Huiqiao, Teehua)
(1 hour by truck)
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We have built sophisticated capabilities in low-cost regions
Able to manage complexity,
technology, and supply
chains in low-cost regions
Optimizing our low-cost capabilities
Solectron manufacturing services
capacity in low-cost regions
2001 2002 2003
50%59%
68%
2004
>70%
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Large and Growing Footprint in China
Solectron Suzhou
Bagan operation in 1997
• Number of Plants: 2
• Total Space: 619,000 sq ft
• Production Lines: 43 SMT lines, 22 box lines
• Number of Employees: >6,800
• Services: Pre-Manufacturing Prototype/NPI
Manufacturing PCB assembly and test,Supply base management,
System build, CTO/BTO
Post-Manufacturing Repair/warranty/service
• Certification: ISO 9001–2000, ISO 14001, QS 9000, TL 9000
Solectron Shanghai
Established in 2000; joined Solectron in 2001
• Number of Plants: 1
• Total Space: 105,000 sq ft
• Production Lines: 7 SMT lines2 box build lines
• Number of Employees: >1,000
• Services: PCB assembly and test,Box build assembly and test
• Certification: ISO 9001–2000, ISO 14001
Solectron Shinei
Established in 1996; joined Solectron in 2001
• Metal Stamping: 155,000 sq ft; 18 power presses
• Enclosure Assembly: 33,000 sq ft; 6 short lines
• Backplane Assembly: 2 lines
• Level 3 Assembly: 89,000 sq ft; 1 main assembly line
• Number of Employees: 1,200
• Services: In-house tool-making facilityIn-house painting line
Design and engineering
Solectron Shenzhen
Began operation in April 1995
• Total Space: 300,000 sq ft
• Production Lines: 19 SMT lines
• Number of Employees: >1.6004 box build lines
• Services: PCB assembly and test, system build/design/NPIHand load lines, supply base management
Repair/warranty service
• Certification: ISO 9001–2000, ISO 14001
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Easy Access
The Right Location for Success: Suzhou
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• EDI Linkage/EIEMS (EDI 联网 / 电子手册管理系统)
- Ensure the smooth and fast customs clearance, paperless management, effective customs supervision,minimize risk
• Weekend OT per Request (周末预约加班)
- Ensure consistency of customs clearance, reduce inventory level and improve materials turn over
• SLC/EBW/EPZ Operation (苏州物流中心 / 出口监管库 / 出口加工区)
- SLC: SuZhou Logistics Center—One-stop service for customs clearance
- EBW: Export Bonded Warehouse—Provide virtual overseas HUB
- EPZ: Export Process Zone -- Especially set up for 100% export business
• SZV Model (虚拟的苏州机场)
- Virtual Suzhou airport, avoid customs formality in Shanghai, improve customs clearance cycle time
• Bonded Logistics Park—Coming in near future (保税物流园—近期内成立)
- Enjoy immediate VAT rebate, best place for VMI hub
Suzhou Industrial Park is the ideal environment.
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Resources, Facilities, and Services: Suzhou
Work Force >6,800 employees
Suqian Plant: 333,000 sq ft
Suhong Plant: 286,000 sq ft
PCB Assembly and Test: 43 SMT Lines
Box Build Assembly and Test: 22 Lines
SBM and Localization Buyer: CE, SQE, SBM, MP, CSCM
Quality Assurance: Total Quality Management
NPI: Dedicated Team
Post-Sales Repair: In/Out Warranty
Space(619,000 sq ft)
Services
Process Engineers: 105
Testing Engineers: 82
RF Engineers: 21
Testing Technicians: 375
EngineerResources
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The Right Capabilities: Systems Integration Capabilities From PCs to Complex Wireless Infrastructure
1997–1999
• Sheet metal stamping
• Hard tooling
• System assembly (small box)
• Enclosure assembly (small box)
• Printers
• PC motherboards
• PC peripherals
Time
Ca
pa
bil
ity
2000-2001
• Base station
• Power module
• Notebook
• Switching products
• Workstation
• Cellular phone
2002
• Backplane assembly
• Soft tooling
• CDMA base station
• PHS
• HUB
• Automotive ECM
• Routers
2003
• Enclosure assembly
• SBM establishment
• System integration and test (subsystem/ small system)
• GSM/GPS
• PDA cell phone
2004
• BTO/CTO
• Repair service
• Enclosure and system NPI
• Complex backplane fabrication
• System integration and test (large systems)
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The Solectron manufacturing system uses Six Sigma Lean to ensure a high-quality environment in China.
World-Class Best Practice forManufacturing Excellence
LEANSIX SIGMA
…Reduce Variability …Reduce Waste
(Toyota Production System)
Value, value chain flow,pull, Kaizan
A statistical and data-driven approach resulting in
breakthrough solutions
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Waste
FG,E&O
Waste
FG,E&O
SLR System Plant
Customer
Suppliers
>1 DayResponse
Waste
RM, Expedite,Load and Chase
Example of Solectron Manufacturing System:Lean Manufacturing
Current State — Batch Production
Customer Forecast (6 months): Week-to-Week Changes1
<1 DayResponse Shipment Based on
Customer Forecast4
Assembly/Test5
WIP
Reality of Life:
Forecast by nature—which coupled with―long‖ supply chain
lead times…
Material
Information Flow
2
MRP (6 months): Week-to-Week Changes
Waste
WIP
PCBA Lines/Test
SLR PCBANeighbor Plant
PCBA Lines/Test
SLR PCBAAway Plant
2
LongLead Times
Changeover… Batch
Producers…
(Lead-Time Issues)
Changeover…
(Material Supply)
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Forecast used to ―capacitize‖ Solectron and supply chainLess waste and more value throughout productionRequires close participation of customers and suppliers
The Future of Our Partnership
Customer’sCustomer
MRP (6 month)
Example of Solectron Manufacturing System:Lean Manufacturing
Moving to a Pull Production System
FG Supermarket(min/max trigger)
Pull on SLRBased on
Customer Order(not forecast)
2
Customer Forecast (6 months, last 2 months = weekly/last 2 weeks = daily)1
On Pull
Suppliers
With ―Slow‖ Lead Times
Suppliers
Customer
Assembly/Test(1 day)
SLR System Plant
3
WIP Supermarket(as required)PCBA Lines/Test
SLR PCBA Away Plant
PCBA Lines/Test
SLR PCBA Neighbor Plant
4
RM Supermarket
5
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Solectron has an advantage in logistics in China.
“Customs Bonded Factory‖—Awarded by China Customs
• Bonded factory license allows importing and keeping material as bonded goods until the real domestic sales happen.
“AA Class Company‖—Certified by China Customs
• No import duty/VAT required when importing bonded material
• Lowest inspection rate: <1%
“Fast Customs Process Company‖—Certified by China Customs
• Pre-Customs clearance
• Critical shipment release process prior to formal Customs entry
e-PTL (Electronic Process Trade Log)
• e-PTL: Electronic tool to manage materials and clearance through Customs
• First company in China to deploy e-PTL Customs process (July 2000), which reduces Customs clearance from 7–8 days to 1.5 days
Logistic Hub in Suzhou Industrial Park (Virtual Hong Kong)
• VMI model with full range of services from import/transportation/Customers clearance to distribution• Specialized third-party logistics provider
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Suzhou inbound supply chain enables the shortest logistics lead time.
• Shipments are shipped through Shanghai air/sea port
• Bonded transfer to SIP Customs
• Customs clearance at SIP Customs
• All raw material can be imported through e-PTL as bonded material
• 1.5 working days from shipment-landed airport
• Shipments delivered to SLRSZ by trucks
ShanghaiAir/Sea Ports
SIP CustomsSLR Suzhou
Air Inbound
Sea Inbound
Materials
Inbound
Daily Trucking
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Practices: The Right Logistics Model for China
Vendor
LocalSupplierBonded
LocalSupplier
Non-Bonded
Overseas
Customs
Suzhou Site
e-P
TL
China
Customer
OverseasCustomer
LocalCustomerBonded
LocalCustomerDomestic
Sale
Bonded
LocalMarket
OverseasMarket
OverseasSupplier
Key Strengths
• Established
• Frictionless
• Optimized
• Government-supported
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• Collaborative design support
• Design for excellence (DFX)
• Supply chain design and sourcing
• New product introduction engineering services
• PCBA and subsystem manufacturing and test
• System assembly and test
• Fulfillment and logistics
• Repair
• EOL services
DESIGN LAUNCH MANUFACTURING SERVICE
We seamlessly integrate solutions across the supply chain, including Suzhou.
Materials and Supplier Management
Information Flows
Lean Processes/Six Sigma
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Suzhou is an integral part of Solectron’s powerful Integrated Global Network.
Key manufacturing sites
Manufacturing focused on optimizing value and risk
Service localized for end-users in each market
Regional design and NPI centers close to your R&D teams
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Case Examples
• Large Wireless Base Station Manufacturer
• 3G Cellular Handsets
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The Challenge
To build complex CDMA and GSM wireless infrastructure base station for worldwide market
Business Outcome
Customer-M able to meet global demand for base station of different technologies
Solectron Solution
Integrated Solectron Global Network with Customer-M’s Schedule Share and other parts of global design and distribution network
Complex Base Station Case
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Powerful Integrated Global Network for Wireless Infrastructure (Base Station)
Customer-MTechnology
Development
Design By Customer-M
Sales to Service Providers Worldwide
SLR SuzhouBase Station
Manufacturing
Shanghai Operation
CenterGlobal SCM
Manufacturing in China
End-Market System Integration
Customer-M Tianjin
System Integration(GSM and CDMA)
Customer-M UKSystem Integration
(GSM )
Customer-M TexasSystem Integration
(CDMA)
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Case Study: Solectron Helps 3G Phones to Go to Market
Customer-N and Solectron Collaborated inTotal Supply Chain Management of
3G Mobile Terminals…
e808 e616 e313
The Challenge
• To bring a complex, feature-rich 3G cell phone to market on time and worldwide
Business OutcomeCustomer-N successfully
launched 3G handset and
captured leadership
position in market
Solectron Solution
• Solectron Integrates Customer-N into Global Network and Manufactures in China
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Powerful Integrated Global Network for 3G Handset
N. AustraliaDevelopment
N. Head Office(Yokohama)
Mobile Terminal Operations Unit
Technology Development,
Sales Promotion, etc.
Design by Customer-N
SLR Belgium
Repair Center
N. EuropeSales
Sales, Service, and Repair
N. MobilingHong Kong
Sales and Repair
SLR SuzhouPhone
Manufacturing
Shanghai Operation Center
Global SCM
Manufacturing in China
End-Market Customization
SLR NetherlandsCustomization
Center
SLR SuzhouCustomization
Center
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• Can’t Afford Not To Be in China Now
- Cost Advantages
- Growing, dynamic and large emerging market
• But, There Are Some Challenges
- Supply chain localization
- Unique China regulatory environment
- Resource constraints
• A Chinese Old Saying: ―Right Timing, at the Right Location, with the
Right Partner!!‖ – 3 Pillars for Success
Conclusion